German Auto Manufacturers Breathe Again As New Coalition Eschews Radical Policies

Olaf Scholz, Germany\’s chancellor designate during a news conference to present the details of the … [+] new coalition. Scholz is set to succeed Angela Merkel as German chancellor after forging an unprecedented alliance that aims to revamp Europe’s largest economy by tackling climate change and promoting digital technologies. Photographer: Liesa Johannssen-Koppitz/Bloomberg

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German automakers were breathing a collective sigh of relief Friday as a new three-party coalition government appeared to hold off from radical action that might have brought an earlier than expected demise to new internal combustion engine (ICE) vehicle sales.

Environmentalists didn’t like the failure to finally end Germany’s lack of a speed limit on some highways and wanted higher taxes on ICE cars. The industry feared a commitment to end the sale of new ICE cars by 2030. The new government wants to bring forward this end date from a European Union proposal of 2035, but failed to add detail. Britain has already committed to ending new ICE car sales by 2030, but so far no other major European producer has followed suit  

The German federal election September 26, using proportional representation, produced an inconclusive result. It took 2 months to negotiate the terms of a coalition government, but this was about 4 months quicker that the last government led by outgoing Chancellor Angela Merkel.

The coalition government, between the centre-left Social Democrat Party of new Chancellor Olaf Scholz, the Greens and the free-market FDP, announced a target of 15 million battery electric vehicles on Germany’s roads by 2030.

That’s the equivalent of about 1.6 million new BEVs a year, implying a BEV share well above 50% by the end of the decade, according to investment bank UBS.

The current government BEV subsidy of up to €9,000 ($10,200) will remain until at least 2025. The coalition government also aimed to make sure there were 1 million charging points in Germany by 2030 and energy was 80% renewable. Currently, coal provides 24% of German power, casting a shadow over its claims to be green. Coal will “ideally” be phased out by 2030 compared with the previous government’s target of 2038.

According to Reuters, BMW liked the new proposals, especially the charging plans. Daimler  was impressed too.

“When I first glanced through the coalition agreement, I liked the sound of three numbers: 15 million electric cars, I million charging points and 80% renewable energy,” Reuters quoted Daimler CEO Ola Kaellenius as saying.

Reaction on the stock market was hard to fathom, as prices dived across the world on renewed fears of a sudden spread in the Coronavirus threat. The overall German stock market, measured by the DAX index, dropped nearly 3%, while the EURO STOXX Auto 600 slid almost 5%. BMW was quoted at €86.38, off 5.2% and Daimler at €83.67 down 5.3% by mid-afternoon. VW only fell 2.5% to €261.6, perhaps reflecting its role as lead dog in electrification.

Brussels-based green lobby group Transport & Environment was disappointed by the agreement. It wanted a target of 21 million BEVs by 2030 – “if Germany is to meet its decarbonization targets on transport” and didn’t like the plan to allow synthetic fuels in ICE engines.

“Conventional cars running on e-fuel consistently emit more CO2 (carbon dioxide) than equivalent battery electric cars and e-fuel production also requires 5 times as much energy as direct electrification,” T&E said, quoting its own report.

The coalition will make plug-in hybrids less attractive, with subsidies only applicable to vehicles with at least 50 miles of electric-only range from August 2023. The current PHEV electric-only range is about 30 miles.

UBS reckoned the new government plans will be good for electrification.

“Overall, we think the new government sets the framework for an almost fully electric future in 2030, including the necessary push for infrastructure and a decarbonized electricity mix,” UBS said in a report.

“The roadmap for EV subsidies is clear and totally sufficient, in our view, and the framework will help to further accelerate the shift of consumer preferences towards EV. A hard ICE phase-out date was not defined and isn‘t even needed, in our view. (manufacturers) with an all-in BEV strategy and limited dependency on PHEV are the clearest beneficiaries of this treaty, Tesla

, VW group and Daimler above all,” the report said.